Canadian financial institutions will be subject to the Organisation for Economic Co-operation and Development’s (OECD) Common Reporting Standard as of July 1, 2017 with the first exchanges of financial account information beginning in 2018.  The CRS, known formally as the Standard for Automatic Exchange of Financial Account Information in Tax Matters, was developed by the OECD and approved in July 2014 as a global standard for the automatic exchange of financial account information.  Over 90 jurisdictions have undertaken to join the CRS, which is intended to address tax evasion and to improve international tax compliance.

The CRS will require the Canada Revenue Agency (CRA) to provide information to foreign tax authorities about accounts held in Canada by residents of their jurisdictions.  Consequently, Canadian financial institutions will be required to identify accounts held by non-Canadian residents and report certain information pertaining to these accounts to the CRA.  The CRS is based on the US Foreign Account Tax Compliance Act (FATCA).  It would therefore allow Canadian financial institutions to base CRS compliance partially on existing FATCA compliance procedures.  However, it is expected that the volume of data that would be reported under CRS would be significantly greater than that reported under FATCA.

The CRS applies to custodial institutions, depositary institutions, investment entities and certain specified insurance companies.  These may include mutual funds, exchange traded funds, hedge funds, venture capital funds, leveraged buy-out funds and similar investment vehicles.  The financial information that must be reported under CRS with respect to reportable accounts includes interest, dividends, account balance or value, income from certain insurance products, sales proceeds from financial assets, other income generated from assets held in the account or payments made with respect to the account and the account holder’s taxpayer identification number.  CRS requires financial institutions to look through certain passive entities to report on the relevant controlling persons and would apply to accounts held not only by individuals, but also by entities such as trusts and foundations.

On June 2, 2015, Canada signed the Multilateral Competent Authority Agreement (the MCAA) and became one of more than 60 state signatories, including Germany, the UK and France, to the MCAA.  The MCAA allows for a coordinated arrangement for the automatic exchange of financial account information with other jurisdictions.  The Government of Canada announced in Annex 5.1 of its 2015 Budget released on April 21, 2015 that it expects draft legislation implementing the CRS to be proposed in the coming months.